GERMANY Law and Practice Contributed by: Michael Best, Gerald Herrmann and Jannis Lührs, POELLATH
ful life applies for fiscal years ending after 31 Decem - ber 2020. 2.3 Special Incentives Germany provides special investment incentives to small and medium-sized companies by way of an additional capital allowance of up to 40% of the origi - nal costs and investment, and a deduction of up to 50% of the prospective original costs. In 2025, the German government approved the so- called “Investment booster”, enabling accelerated depreciation options for movable fixed assets of up to 30% applicable to investments that are made after 30 June 2025 and before 1 January 2028. Also in 2025, significant changes to the research allowance were introduced, which will apply from 2026. Mainly, the changes allow companies to claim eligible expenses up to an amount of EUR12 million for the fiscal years 2026 to 2030. Of this base amount, 25% (or 35% for small and medium-sized enterprises) is deductible as research allowance. 2.4 Loss Relief Regarding income and corporate tax, loss relief is granted through the application of the following instru - ments. Firstly, the positive and negative income of one year is netted. Secondly, taxpayers may choose to carry back the losses to the previous year, or they may choose to carry forward the losses indefinitely. In the case of carry back, any losses may be offset against the prof - its of the preceding year up to EUR1 million. Due to the COVID-19 pandemic, the loss carry back for 2020 and 2021 was EUR10 million, and returned to EUR1 million from 2022 onwards. An offset by way of carry forward is possible up to EUR1 million annu - ally without restriction. Regarding negative income that exceeds the EUR1 million threshold, in each subsequent year only 60% (until 2023 and from 2028 onwards) respectively 70% (2024 until 2027) of addi - tional income can be offset against such losses car - ried forward. The transfer of a share percentage over
50% may result in a total forfeiture of carry forward not yet offset. These rules do not apply to the extent there are hidden reserves that are taxable in Germa - ny. Furthermore, these regulations do not apply in the case of intra-group acquisitions of shareholdings (ie, group relief). However, the requirements for this are very strict and hard to meet. However, there is another possibility to prevent the for - feiture of the loss carry forward not yet offset if more than 50% of the shares are transferred. This requires that strict conditions are met cumulatively (time-lim - ited application in the tax declaration, continuation of the same business, etc). Furthermore, no so-called harmful event must have taken place (discontinuance of the business, an additional business area is added, etc). When these strict conditions are met, the loss carry forward not yet offset is determined separately as so-called accumulated loss carried forward ( fort- führungsgebundener Verlustvortag ) and can be offset against the profits. This accumulated loss carried for - ward is determined annually. As soon as one of the strict conditions is no longer met, the accumulated loss carry forward is fully lost, unless it is covered by hidden reserves subject to domestic tax. A case is pending before the Federal Constitutional Court in which it is to be clarified whether the 50% limit is unconstitutional. It is likely that this regulation will also be declared unconstitutional. In the case of trade tax, trade earnings may be reduced by loss carry forward; carry back is not provided for. An offset is possible without restriction against loss - es of up to EUR1 million; regarding losses exceeding EUR1 million annually, only 60% of losses may be offset against subsequent trade earnings. The rules regarding the forfeiture of carry forward are the same as for corporate tax. 2.5 Deduction of Interest German tax law provides interest barrier regulations. Interest expenses may be deducted without restric - tion up to the amount of interest income obtained in the same business year; amounts in excess are only deductible up to the amount of 30% of taxable EBIT - DA. This restriction does not apply in the following circumstances:
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